FTSE rally continues as Vodafone leads the way after AT&T/T-Mobile USA deal

Leading shares are continuing the rally that began at the end of last week, on merger news and hopes that Japan was coming to grips with the problems at its nuclear power plants.

But the optimism was tempered by the situation in Libya, with the weekend's air attacks seemingly causing concern to the West's Arab allies, and fears of supply problems pushing up the oil price more than $1 to $115.

Asian markets moved higher overnight - although the Nikkei was closed for a holiday - and helped push the FTSE 100 up 64.48 points to 5782.61. The Dow Jones Industrial Average is forecast to open more than 100 points better.

Vodafone was the leading rising in the FTSE 100, up 6.8p to 176.75p in the wake of the weekend's news that AT&T had agreed to pay £24bn for T-Mobile USA from Deutsche Telekom. The move led to renewed speculation of a merger between Vodafone and its US partner Verizon. Investec analysts said:

For Vodafone the US consolidation is relatively good news, in our view. The consolidation of the US mobile space will be of benefit to 45%-owned Verizon Wireless. It basically sidelines its major US competitors in a focus on integration and synergy extraction...a process that we have seen in Everything Everywhere does not normally benefit near-term operational performance.

The deal does reduce Vodafone's potential moves in the US (T-Mobile and/or AT&T would have made the most likely bedfellows if Vodafone were to have gone down the path of relinquishing its Verizon Wireless position)...but it also makes the potential for a Verizon-Vodafone merger deal a little more likely, in our view (in keeping with seemingly warming, or at least thawing, relations between the two).

But Investec reckoned the deal was bad news for Inmarsat, down 9.5p at 567.5p, because it could cause problems for the satellite group's US partner Lightsquared. Investec said:

An AT&T/T-Mobile deal ... makes the likelihood of the Phase 2 extension to the Lightsquared deal a little less likely (we don't include any of this in our valuation anyway). The deal is for an effective purchase of Inmarsat Spectrum into perpetuity for $115m per annum...it would be worth around 150p per Inmarsat share.

Lightsquared is a wholesale 4G network to be built across the US. It requires some deals with the network operators to become legitimately viable. T-Mobile has often been viewed as one of its key targets for such deals, so its potential merger with AT&T is a blow for Lightsquared. This does not blow Lighsquared out of the water, but it does make it harder, and perhaps longer term for it to prove its case to a sceptical market.

UK power companies have slipped back after regulator Ofgem ordered them to simplify pricing or face a competition commission enquiry. British Gas-owner Centrica, which also announced the £55m acquisition of New York group Gateway Energy Services, has lost 1.9p to 326.6p, while Scottish and Southern Energy is down 5p at £12.29.

Weir has climbed 60p to £16.95 following an upgrade on the engineering group from Credit Suisse. The bank has moved from neutral to outperform with an £18.35 price target and said:

With Weir underperforming the sector by 5% over the last three months, we see the current share price as a good re-entry point into what remains a strong organic growth story.

It said recent strong order intake should underpin revenue growth of 16% in 2011, while the company also had acquisition headroom of more than £650m, which gave it plenty of scope for earnings enhancing deals.